Northville, MI · Member since 2016 · 4 posts · 0 votes
I have a rental property (a condo) that was placed into service 2004. I started taking the 27.5yr depreciation that year, but stopped in 2010 when it became my primary residence. However, in 2015, I placed it into service again.
For talking purposes, let's assume I started with $200,000 in 2004, and ended with an adjusted basis of $165,000 in 2010. Starting 2015, do I depreciate the $165,000 for the remaining 21.5yrs of the original recovery period, or do I start new at 27.5 yrs again?
Also, can I add improvements I made to the condo during 2010-2015, when it was my primary residence, to the $165,000 adjusted basis?
I couldn't find information on this topic where a rental property is placed into service a second time. Thanks!
Northville, MI · Member since 2016 · 4 posts · 0 votes
10y
Hi J Beard,
I didn't have a CPA handle this in 2010 when I converted from rental to personal. It seemed straight forward enough that I took care of Schedule E myself since 2004 using Turbo Tax.
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
10y
Assuming you recaptured the depreciation in 2010 when you converted from rental to primary. If you didn't, you'll need to go back and amend your 2010 return.
You'll use your basis in 2010 (including recaptured depreciation) and compare it to market value in 2015 when it was placed back in service and use the lower of cost or market to value the property. Depreciation will start over again at 27.5 years.
Major capital improvements made while you lived in the house can be added to the basis at adjusted value. For example, if you put a roof on in 2011 for $10,000 you won't want to depreciate the full value, you'll want to deduct from the cost an amount to recognize that there has already been 4 years of use on the roof. Essentially the roof you are putting in service isn't worth $10,000.
Northville, MI · Member since 2016 · 4 posts · 0 votes
10y
Linda, thank you for your reply. I did not recapture the depreciation in 2010 because I thought that was done only when I sell the property. I did not find any publication at the time that directed me to do so. I would go back and amend 2010, but what is the time limit? Isn't it usually 3 yrs?
My original thought process was that I would start depreciating the property starting from $165,000 today (or whatever the FMV is today) and recapture all the depreciation, including the original $35,000 form 2004-2010, when I sell the property. Is that allowed since I don't foresee it ever becoming a primary residence again?
As for the feedback about capital improvements, it makes sense.
Northville, MI · Member since 2016 · 4 posts · 0 votes
10y
I just remembered some information that might change the recommendation above. In 2010 when my rental became my primary residence, the FMV was actually way below $165,000, around $100,000. I have an appraisal to support it. Thus, I don't believe I had to recapture the depreciation anyways, correct? (ie. Don't need to amend 2010)
It has only been the last couple of years that the condo actually went back up in price, actually close to $165,000, but still nowhere near the $200,000 starting point in 2004. So, do I restart the 27.5yr depreciation in 2015 at $165,000? When I sell the property for >$165,000 in the future, how does the original $35,000 depreciation from 2004-2010 get factored into to depreciation recapture?